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Story Publication logo August 25, 2023

Adani’s Acquisitions: Inside the Company’s Growth Machine

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‘Darwinian’ politics and the fact that mature concessions like ports and airports are coming on the market have created good business opportunities. 


BENGALURU, India — The first part of our deep dive into the Adani Group’s acquisitions flagged the centrality of state concessions to a part of the business empire.

Coming with large land banks, ongoing operations, established market position and monopolistic cash flows, concessions like Gangavaram and GVK’s Mumbai Airport add both cash flows and hard assets to the group’s kitty. And so, not only is the group acquiring concessions by buying firms pushed into bankruptcy courts (like Dighi and Karaikal ports), it also buys firms outright from their promoters.

Spectacularly profitable after the first ten or so years, concessions are not always available for sale. And yet, Adani has managed to buy as many as six ports in the last nine years. Some sales have been concluded despite Adani – in the case of Gangavaram, as alleged by former Union revenue secretary E.A.S. Sarma – valuing the assets conservatively.

In addition, some cases saw a coincidental overlap between stake sale and actual or alleged state action. For example, in Andhra Pradesh, Navayuga, the promoter of Krishnapatnam port, found itself in the government’s crosshairs soon after the government of Y.S. Jagan Mohan Reddy came to power. Reddy acted against business houses that had won contracts during the chief ministerial tenure of his political rival, Chandrababu Naidu of the Telugu Desam Party (TDP). In the case of GVK, whose promoters were investigated by the Enforcement Directorate, Congress leader Rahul Gandhi has accused the Modi government of using his agencies to hasten the sale of Mumbai airport to the Adanis.

This pointed accusation has prompted strong denials by the Adanis and GVK. Earlier this year, after Gandhi spoke of the Mumbai airport sale in the Lok Sabha, the GVK Group’s vice-chairman Sanjay Reddy issued a statement saying he had not been coerced into the sale.

In the case of Gangavaram, though industry executives and at least two state government officials and a relative of the port’s promoter D.V.S. Raju – all of whom asked that their identity not be revealed – spoke of state government interest as a factor in the sale, both Adani and Raju denied there had been any official involvement in the deal. “These allegations are false and baseless,” the Adani group said in a statement emailed to The Wire in response to a questionnaire that cited some of these accusations. “It is unfortunate that, despite not being true, such allegations are being rehashed.” As for Raju’s family, it said: “We want to emphasise that this decision was made independently, without any external pressure.”

The backstory of Gangavaram

At one time, the land around Gangavaram must have been scenic.

The shore here seems to inch almost imperceptibly towards the sea. Before the port came, local fisherfolk walked through fields and coconut groves to their boats. As they walked towards the sea, small hills stood to their left – on the other side, the city of Visakhapatnam.

In 1994, the state government decided to build a port on the site of two villages – Gangavaram and Dibbapalem. The idea had been doing the rounds for a while. “Visakhapatnam Port wanted to set Gangavaram as a satellite port and shift polluting cargo like coal – which went to local industries like the Vizag Steel Plant – here,” said a union leader in Visakhapatnam. “Vizag Steel Plant wanted to set up a private port at Gangavaram as well.”

India, however, was liberalising. State-directed capitalism was on the back foot. These proposals – from state-owned entities – went nowhere. Instead, Chandrababu Naidu, Andhra Pradesh’s chief minister at the time, took over the project, saying Gangavaram would be developed as a state port, using India’s brand new Public Private Partnership (PPP) framework.

That was the first time Adani evinced interest in Gangavaram. In 2001, a consortium led by Adani Exports (which would later become Adani Enterprises) participated in the tender. It lost to the only other rival bidder – a consortium led by D.V.S. Raju, a former senior executive at IT giant Satyam and founder of VisualSoft.

Work began in 2005. When local villagers protested, the state bit down. “Protestors were jailed,” said a union leader. “There was a lot of violence at this time. Two villagers died in police firing.” That was in 2006.

The port then came up as planned and operations started in April 2009. Given its deep draft – the seabed off India’s east coast drops steeply just beyond the shore – Capesize vessels could dock at Gangavaram. Given its proximity to the Vizag Steel Plant, not to mention mineral-rich states like Odisha and Chhattisgarh, the port found itself importing and exporting iron ore and coal cargo – and growing rapidly. Built with an investment of Rs 1,850 crore, the port’s first phase hit a cash break-even in 2010-11.

Along the way, it began attracting buyers. “(Stock trader) Rakesh Jhunjhunwala tried around 2012,” said a retired senior official at Vizag Port Trust. “DVS (Raju) refused at the time. He quoted a very high premium.”

In 2015, Adani tried again. “He travelled down to Andhra with his son Karan Adani and aide Rajesh Naithani,” said a senior executive at a south Indian port on the condition of anonymity. “This time around, Raju was more open to an exit. His health wasn’t very good and so, he wanted to monetise at a good valuation.”

Those talks, however, broke down. The reasons are unclear. Neither Raju nor the Adani Group responded to The Wire’s question about these talks. According to the port executive, a disagreement over payment schedules was to blame. According to a former official in the state ports department, however, a difference in valuation was the trigger. “Adani wanted to pay around Rs 5,600-Rs 5,900 crore,” he said. “As for Raju, he wanted [more].”

Things stayed calm for the next three years. And then, two big developments followed.

Prelude to an acquisition, a crucial rule change

India’s model port concession agreement has a grey zone, said the retired Vizag Port Trust official. “While concessionaires can be replaced if they, for instance, default on a loan, the agreement doesn’t clarify if concessions can be sold,” he said.

On being asked why, he said this was probably an omission. “I think the drafters couldn’t imagine an outcome where anyone would want to sell. For the first ten years of its life, the project would have high debt. In the subsequent years, you make a killing. Why would anyone sell?”

These concessions should not be tradable, the port executive said. “The concession is given on the basis of qualifications. In such a set-up – not to mention the Supreme Court order that all natural resources have to be awarded through bids to avoid windfall gains – the government has to re-bid.”

In January 2018, however, the Modi government changed the rules for port concessions, providing an exit route to developers by way of divesting their equity up to 100% after completion of 2 years from the commercial operation date. All that the government said at the time was that this change was made “keeping in view the experience gained in managing PPP projects in port sector during the last twenty years and to obviate the problems being faced on account of certain provisions in the existing MCA.”

The Wire wrote to Sarbananda Sonowal, Union minister for ports, shipping and waterways, asking him about the logic behind this amendment. This article will be updated when he responds.

Enter Jagan as CM

The next consequential development followed in May 2019. On May 30, Jagan Mohan Reddy became the chief minister of Andhra Pradesh. The businessman-politician son of former state chief minister Y.S. Rajasekhara Reddy came to power after a one-year march across the state which positioned him as a mass leader.

Shortly after coming to power, the new chief minister hit national headlines after cancelling the state’s power purchase agreements, alleging cronyism.

He also turned on the state’s infrastructure sector. The first firm to lose assets was Navayuga, a Hyderabad-based EPC company which, like many of its peers, had acquired infrastructure assets in the 2000s. Amongst those assets were two ports – Krishnapatnam and Machilipatnam. Of these, Krishnapatnam was operational. In 2019, on a total income of Rs 2,407 crore, its EBITDA [earnings before interest, taxes, depreciation and amortization] stood at 27%. Apart from these, Navayuga also held the construction contract for the massive Polavaram irrigation project.

Soon after Jagan came to power, Navayuga lost all three projects. On August 1, 2019, alleging discrepancies and delays, the state government took away the contract to build Polavaram from the company and gave it to Megha Engineering, even as Chandrababu Naidu and the TDP cried foulOn August 9, the state government cancelled the Machilipatnam port contract; on September 30, it awarded the project to Adani.

On October 22, the government took away 4,731 acres of land abutting Krishnapatnam. At this time, the port’s future was still unclear. “The government had given them 1,400 acres apart from the port area which they didn’t use,” said the retired Vizag Port Trust official. “And so, the state government began issuing warnings.” It wasn’t as yet clear who Krishnapatnam would go to. “I do not think Jagan had anyone in his mind,” said the retired IAS official. “He just wanted to take over the port.”

In the end, one of the winners from this ‘vendetta politics’ involving Jagan and the TDP – as the Deccan Herald described these events – was the Adani Group.

As government pressure by way of cancellation of projects mounted, the port executive said, the younger son of C.V. Rao agreed to sell his stake in Krishnapatnam to Adani. Shortly afterwards, the rest of the family acquiesced as well.

The first part of the deal, where Adani picked up a 75% stake in the port, was announced on January 3, 2020. The group acquired the rest in April 2021.

The Wire emailed questions to C. Sridhar, the managing director of Navayuga Engineering, the Adani group, and the office of Jagan Mohan Reddy seeking to better understand this process. Adani’s full response is appended below. It didn’t answer specific questions about Gangavaram and Krishnapatnam but said, “Our business expansion decisions emerge from a careful evaluation of the state of the potential acquisition, its prospects for growth and its synergies with our existing operations, through fair, transparent and well-established business processes. These are business transactions handled professionally, with mutual respect and trust.” This article will be updated when the others respond.

During the tenure of Jagan’s government, the ownership of a number of infrastructure projects appears to have moved to two sets of firms. The first is Adani. The second is to six or so political and business family dynasts, some of whom, like the Aurobindo group, have directors with family links to leaders from Jagan’s party, the YSR Congress.

It is pertinent to mention here that Jagan Mohan Reddy, who has had no public association with the Adani Group, unlike the BJP, himself came to office with significant vulnerabilities. During the UPA years, he had been charged by the CBI in several corruption cases. At the time of his march across Andhra, he was out on bail. This has resulted in the perception that the Union government has leverage over the state government.

The Wire wrote to Jagan Mohan Reddy asking him to comment on these aspects. This article will be updated when he responds.

‘A decision made independently, without any external pressure’

After Krishnapatnam came Gangavaram’s turn. Unlike Navayuga, D.V.S. Raju had stayed aloof from politics. Andhra Pradesh, however, had three private ports – Gangavaram, Krishnapatnam and Kakinada. Three more were coming up – Machilipatnam, Ramayapatnam, and another near Srikakulam. Of these, Aurobindo Realty had bagged Ramayapatnam and Kakinada. The state had cancelled Srikakulam and awarded Machilipatnam to Adani, who had also acquired Krishnapatnam. That left Gangavaram.

Adani had put in a bid for Gangavaram in 2002 but lost out to Raju. And in 2015, as we have described in Part 1, his talks with Raju to buy the port for a total consideration of $2.1 billion did not yield fruit.

When Adani tried again in 2021, however, he found Raju was willing to exit. Asked for the reason why they had now agreed to sell, the Raju family sent an emailed response. “For several years, we have been receiving many proposals from leading global port players,” they said. “After careful evaluation, we found synergies with Adani Ports and have taken a decision for merger and it was purely a business decision.”

The Wire’s questionnaire to Raju included two allegations that a number of sources had made. First, that the Greater Visakhapatnam Municipal Corporation’s February 2021 decision to demolish a part of the Gangavaram boundary wall pursuant to a nine-year-old encroachment complaint from the local industries association had helped firm up the promoter’s mind to exit. And second, that soon after the demolition, a senior political figure in Jagan’s YSR Congress Party met him and asked him to sell. To these allegations, Raju replied, “We want to emphasize that this decision was made independently, without any external pressure.”

The Wire also wrote to Adani and chief minister Jagan Mohan Reddy’s office, seeking their comments. Adani’s rejection of any allegations of state coercion has already been mentioned in this story. Its full response, as mentioned above, is appended at the end of this article. The political leader and the chief minister didn’t respond but Adityanath Das, who was chief secretary of Andhra at the time, also denied the government had played any role. “On the specific transaction between Gangavaram and Adani, we had no say on that,” he said. “From the state government side, there was no coercion.”

In the weeks that followed the sale, the state government also sold its stake to Adani at the same valuation, making Gangavaram a fully-owned unit of Adani Ports & SEZ (APSEZ). It was the government’s decision to sell its stake – without calling for bidding – which resulted in the PIL.

State’s counter to the charge of forgoing revenue

In its counter-affidavit, signed by R. Karikal Valaven, special chief secretary to the government (infrastructure and investment department), the state government said, “The government has secured the best price on market considerations and there is no compromise on maximisation of revenues.”

It said that it had accepted the transaction between APSEZ and D.V.S. Raju on the condition that the terms and conditions of the original concession agreement would be retained. The state government cited a legal opinion from ex-CJI Dipak Misra saying there is “no constitutional mandate for auction under Article 14 of the Constitution”, and that even though “sale by public auction or by inviting tender is the ordinary rule, yet it is not an invariable rule.. there can be exceptional circumstances which may necessitate departure from the ordinary rule… The concept of holding an auction of shares of GPL, in the instant case, unquestionably would be contrary to economic rationale.”

In his opinion, Misra also said that the state government cannot auction its 10.4% stake without offering the first right of refusal to the promoter, which is now APSEZ. He added that “the marketability of 10.4% is very low as the role of a minority shareholder in a company is very minimal.” Misra said that Warburg’s sale of shares to APSEZ was “arrived at by way of an arm’s length transaction between two unrelated private parties and is, therefore, ordinarily a fair transaction. It’s likely that a valuation now undertaken by GoAP will lead to similar value.”

On the allegation that the port’s land had been undervalued, the government counter said, “As per the terms of the concession agreement, the (Andhra Pradesh Maritime Board) will be entitled to purchase the land after expiry of the Concession period by paying an amount calculated after factoring 6.5% as an appreciation every year… in such circumstances, the value attributed to the land by the petitioners and thereby jumping to conclusion that the State is parting with said land without any consideration in non-transparent manner is not tenable.” In addition, KPMG told The Wire, “We have considered the present value of the land escalated at 6.5 per cent.”

Evaluating the valuation

As for the question about whether Gangavaram had been correctly valued, the state government said it had asked KPMG to value Gangavaram’s shares – and that it had asked SBI Capital Markets to study whether it should sell its shares directly to Adani or call for an open bid. In its report, KPMG Valuation Services said it derived Gangavaram’s valuation by, among other methodologies, averaging EV/EBITDA multiples of 14 “comparable” ports. (It used discounted cash flow, comparable port valuations, comparable transactions and Adani’s share buys from Warburg Pincus and D.V.S. Raju as the four indicators to arrive at Gangavaram’s valuation). All these methodologies, said KPMG, netted an average value of around Rs 115 per share.

Given that Adani was offering Rs 120 a share, said the government’s affidavit, both SBICaps and Grant Thornton Bharat LLP suggested a direct sale.

In his interview to The Wire, a senior port executive who asked not to be named said six of the 14 ports studied by KPMG were state-owned ports in China with low EV/EBIDTA multiples. In contrast, the multiple for private ports in the list ran as high as 23. And, as the PIL said, two other international ports – DCT Gdansk and a container terminal of Orient Overseas International – sold at EV/EBITDA multiples of 16 and “over 20” respectively. The Wire retains a record of this and other interviews but is both entitled and bound to protect its sources.

The Wire wrote to Amit Jain of KPMG Valuation Services asking why he thought the comparison they had made was valid. This article will be updated when he responds.

Aside from the debate over valuation, the state government’s decision to sell its stake in the first place has also been questioned. The state had given land many years ago based on nothing but a DPR and agreed to a low revenue share. Now that there was a flourishing deep-water port in Gangavaram, able to berth large vessels, and now that this port was being acquired by India’s largest private port company, was the government foregoing a lucrative potential revenue stream by selling its 10.5% stake instead of holding on to it and even extracting better terms?

In his letter to CAG G.C. Murmu, retired IAS officer E.A.S. Sarma challenged the state government’s decision to sell its 10.4% stake for Rs 664 crore saying that even back in 2017, the port’s valuation had stood at at least Rs 7,500 crore (i.e. $1 billion; going by reports of Warburg’s valuation of Gangavaram at between $1 billion to 1.4 billion at the time). “The value of the port would have increased since then, over the next four years, as a result of the addition to its assets, its increased throughput and the increased market value of the 1,800 acres of land in its possession,” he wrote. “Keeping these developments in view, the state government ought to have retained its own equity share in the port.”

The state government didn’t respond to The Wire’s questions. Its arguments countering the PIL have been quoted above.

The Wire also asked the Adani Group to comment on the seemingly mismatched valuations of Krishnapatnam and Gangavaram – and the comparison with state-owned ports. In its statement, the group didn’t answer that specific question, saying instead: “Our business expansion decisions emerge from a careful evaluation of the state of the potential acquisition, its prospects for growth and its synergies with our existing operations, through fair, transparent and well-established business processes. These are business transactions handled professionally, with mutual respect and trust.”

Elsewhere, allegations that the Centre stepped in

While in Krishnapatnam’s case, the initiative and decision that culminated in the port’s sale were, at least, formally that of the state government, Mumbai International Airport Ltd saw the Union government facing accusations of being a factor.

In the sale of the GVK-owned Mumbai airport to Adani, GVK Airport Developers Ltd was the holding company for GVK Airport Holdings, which owned 50.5% of MIAL. Of the rest, 26% was held by the Airports Authority of India. Two South African private investors – ACSA and Bidvest – held 23.5% between them. Apart from owning the concession for Mumbai airport, MIAL also held the concession – and a 74% stake – in the upcoming Navi Mumbai International Airport.

By 2019, under pressure from its lenders’ consortium, GVK was planning to sell a 49% stake in GVK Airport Holdings to the Abu Dhabi Investment Authority (ADIA) and its partners. In February 2019, however, Adani announced it had struck a deal to pick up Bidvest and ACSA’s 23.5% stake in MIAL. ADIA went to the Delhi High Court asking it to stop the sale. GVK too blocked the deal, citing the right of first refusal.

When it couldn’t stump up the cash, the matter went to court. Things stayed in limbo till June 27, 2020, when the Central Bureau of Investigation filed an FIR saying GVK had siphoned off Rs 705 crore – and caused a loss of Rs 310 crore to the exchequer by creating false work contracts. On July 2, the agency conducted searches at GVK’s offices in Mumbai and Hyderabad. On July 7, the Enforcement Directorate filed a money laundering case. On July 28, its officials raided GVK’s offices as well and said it would charge its promoters with money laundering.

The media reported on August 24 that talks were underway between GVK and Adani. By August 30, 2020, Adani had bagged MIAL. The deal netted Adani two prime airport concessions – the existing one at Mumbai; and the upcoming one at Navi Mumbai.

While the justification for the CBI’s allegations against GVK cannot be established until the matter goes through all levels of an open judicial process, it is worth noting that the CBI informed the special court in Mumbai in January 2023 that no government official was found to be involved in the corruption case registered against the GVK Group and that it was no longer pressing charges under the Prevention of Corruption Act. What remains now is only the charge of cheating. On July 4, 2023, however, a special CBI court set aside the summoning order issued by the trial court against all 58 persons accused of cheating, including G.V.K. Reddy and Sanjay Reddy. As for the ED’s charges, the agency has maintained radio silence on the matter since the end of July 2020 and there has been no development in the public domain since then.

Though this visible overlap between Adani’s takeover talks for Mumbai airport and the investigative agency raids was a first for India Inc, market regulators and Indian newsrooms chose not to look into whether these developments were linked or unconnected.

After Rahul Gandhi accused the government of arm-twisting the GVK group into selling MIAL to Adani, GVK’s V. Sanjay Reddy made a public statement denying he had been coerced. “As far as GVK is concerned there was no pressure on GVK either from Adani group or from any agencies. We sold [the] airport due to our own commercial interest,” he said. Similarly, both D.V.S. Raju and Adani have denied the state government played any role in the Andhra port transactions.

And yet, it is worth considering whether Adani would have been able to smoothly acquire Krishnapatnam – or Gangavaram in its entirety – if the Jagan Mohan Reddy government had not acted the way it did. In the case of these two ports, even assuming the state wasn’t looking to expressly benefit anyone, the fact remains that Adani – along with Aurobindo Realty – was the biggest gainer from the increasingly Darwinian politics of Andhra Pradesh.

In the case of MIAL, the unfortunately timed crackdown on GVK came from the Narendra Modi government’s law enforcement agencies.


Appendix: Adani’s Response to The Wire’s Questionnaire

Thank you for approaching us, please find herewith our response to your query as appended.

These allegations are false and baseless. It is unfortunate that, despite not being true, such allegations are being rehashed.

Over the decades, the Adani Group has proven its expertise in designing, building and managing world class infrastructure projects that bring about primary and secondary economic growth and also employment and benefits to the community. In addition to greenfield projects, the Group has also relied on strategic acquisitions to expand its business. Our business expansion decisions emerge from a careful evaluation of the state of the potential acquisition, its prospects for growth and its synergies with our existing operations, through fair, transparent and well-established business processes. These are business transactions handled professionally, with mutual respect and trust.

Responding to these allegations, Mr GV Sanjay Reddy, Vice-Chairman of the GVK Group, has publicly stated his views (Link 1Link 2).

It would only be fair that you reach out to the DVS Raju Family too for clarifications in this regard.

Thanx & Regards

Roy Paul
Spokesperson – Adani Group

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